The Year in Land Policy
From Ferguson to Medellín, 2014 has been a year of tumult and promise for cities. The World Urban Forum showcased the many ways the former drug capital in Colombia was making life better for poor residents, with gondolas, libraries, and parks. Meanwhile, racial divisions and inequality in St. Louis and other Legacy Cities had a basis in planning decisions and infrastructure investments going back decades. The concept of shared equity housing gained ground, some zombie subdivisions began to make a comeback, and New York City and Connecticut tested the waters with a land value tax. We asked the experts of the Lincoln Institute of Land Policy to reflect on what they considered the top stories of the year, and here's what they said:
- The Detroit bankruptcy was at center stage for municipal fiscal health and tax policy, says Joan Youngman, chair of the Department of Valuation and Taxation. Earlier this month, federal judge Steven Rhodes approved a restructuring plan to allow the city to emerge from its Chapter 9 filing, cutting $7 bllion in unsecured liabilities and calling for $1.4 billion in reinvestments over 10 years in public services and blight removal. Emergency Manager Kevyn Orr plans to resign before the end of the year. But the city's property tax environment faces daunting challenges, as property values remain far below pre-crisis conditions. Although the city has embarked on a three year citywide reassessment process, tax payments are currently based on inflated and inaccurate assessments. Perhaps even more troubling, property tax delinquency is now at 54%, and Wayne County has begun proceedings on 62,000 new tax foreclosures. Unfortunately, about 80% of tax foreclosed properties sold at auction are again delinquent within two years. The controversy over mass water service termination by the Detroit Water and Sewerage Department received global attention. Public officials recognize that water services are essential to households and businesses, but face the challenge of collecting the cost of service. Bankruptcy is helping to rectify Detroit's fiscal condition, but the city will be grappling with these difficult fiscal issues for the foreseeable future.
- The top story of 2014 from China was that the country started a difficult structural reform while the economic growth shifted gear to the"New Normal," a new conservative growth target no more than 7% a year, says Zhi Liu, director of the China program. Among the comprehensive reform directions are a few directly related to urban governance and finance. These included gradual removal of the long-standing Hukou restriction for farmers to move to the cities, land reform that would give farmers development rights, improvement of the local tax system, and acceleration of property tax legislation. These were designed to correct various policy distortions in the urbanization process and build a new governance system for a more urbanized China. While the reform directions were set, the detailed reform roadmaps and actions were yet to be worked out. The key question is whether these reforms get implemented and how soon. The structural changes may slow down the economy in the short-run before paying handsome dividends. By all indications, the reform program was really a major challenge for the country, and a lot remains to be seen and expected in the next few years.
- The big story of the year could well turn out to be the big story of the first half of this century, says Armando Carbonell, chair of the Department of Planning and Urban Form: the expected increase in global urban population by about 2.5 billion. Citing the work of former visiting fellow Shlomo "Solly" Angel (Planet of Cities, Atlas of Urban Expansion), The Economist notes how "cities are bound to grow, but they need planning to be liveable." As an alternative to creating new slums, this means anticipating growth and providing infrastructure and serviced land in the right locations, with good access to jobs. And, because global urbanization will collide with the other big disrupter of the century, climate change, these cities will also need to reduce greenhouse gas emissions and prepare to adapt to the impacts of extreme weather. And although most of the planet's new urbanization will occur in developing countries, the United States will buck the trend in most developed countries, growing by as many as 100 million new city dwellers by mid-century. There are many positive trends in contemporary U.S. urbanization to build on, including increasing vitality in core cities, but challenges remain, including regenerating Legacy Cities like Detroit, and finding solutions to deal with housing affordability and chronic homelessness.
- This was the year that value capture gained increasing acceptance as a tool for financing urban development, says Martim Smolka, director of the Latin America program, and author of Implementing Value Capture in Latin America. In value capture, cities seek to harness the big increases in property value that are the direct result of government actions and public investment, and finance affordable housing, parks, and infrastructure in urban development. The municipality of São Paulo took the concept to a new level by reducing all basic building rights to a floor-area ratio (FAR) of 1; building anything higher requires the purchase of these rights from the city. Also in place are Certificates of Additional Construction Potential bonds (known in Brazil by the name Certificados de Potencial Adicional de Construção or CEPACs), that are auctioned in the stock market. Revenues are being used for social housing and improvements, having arguably the greatest impact in advance of urban development, in the fast-growing city of 10 million.
Funding education
The property tax has a bedrock role in the funding of K-12 education, and the Lincoln Institute is proud to make new research freely available on the subject in a special issue of the journal Education Finance and Policy. Eight articles in the Fall 2014 issue of the journal can be downloaded without charge from the website of the Association of Education Finance and Policy.
A fresh look at the intersection of the property tax and school finance is important for several reasons. Total revenues devoted to public education have fallen in recent years, revenue growth is sluggish in many states, and there are diminished prospects for increased federal funding for K-12 education. Local school districts will be under growing pressure to increase property taxes, or to turn to alternative sources of local government revenue.
An introductory chapter by Lincoln Institute fellows Daphne Kenyon and Andy Reschovsky sets out three themes: the potential for unintended consequences from state legislation; the potential for state school finance and property tax policies to provide greater advantages for high-wealth or high-income school districts than for low-wealth or low-income districts; and the enduring importance of the property tax in the funding of public education in the United States. Among the significant findings of the research:
- The Detroit bankruptcy was at center stage for municipal fiscal health and tax policy, says Joan Youngman, chair of the Department of Valuation and Taxation. Earlier this month, federal judge Steven Rhodes approved a restructuring plan to allow the city to emerge from its Chapter 9 filing, cutting $7 bllion in unsecured liabilities and calling for $1.4 billion in reinvestments over 10 years in public services and blight removal. Emergency Manager Kevyn Orr plans to resign before the end of the year. But the city's property tax environment faces daunting challenges, as property values remain far below pre-crisis conditions. Although the city has embarked on a three year citywide reassessment process, tax payments are currently based on inflated and inaccurate assessments. Perhaps even more troubling, property tax delinquency is now at 54%, and Wayne County has begun proceedings on 62,000 new tax foreclosures. Unfortunately, about 80% of tax foreclosed properties sold at auction are again delinquent within two years. The controversy over mass water service termination by the Detroit Water and Sewerage Department received global attention. Public officials recognize that water services are essential to households and businesses, but face the challenge of collecting the cost of service. Bankruptcy is helping to rectify Detroit's fiscal condition, but the city will be grappling with these difficult fiscal issues for the foreseeable future.
- In New York State, sharp cuts in state education aid following the Great Recession were partially offset by property tax increases. On average a reduction of one dollar per pupil in state aid led to a 19-cent increase in property taxes. However, most of the property tax increases in response to the cuts in state aid occurred in school districts with the highest level of per pupil property wealth, a fact that undercuts state efforts to equalize educational opportunities across school districts. (Chakrabarti, Livingston, and Roy)
- Michigan restricts local school districts from increasing property taxes to fund school operating expenses, and distributes state aid relatively evenly across school districts, although the wealthiest districts tend to receive higher than average levels of per pupil aid. In Ohio, school districts face no limits on raising local revenues and state aid disproportionately benefits the poorest districts. As a result of these policies, Ohio has been more effective in reducing property-wealth related inequalities in school spending. (Conlin and Thompson)
- Since 1997, New York State has provided homeowners with large property tax exemptions through its School Tax Relief (STAR) program. By reducing the cost of education borne by individual homeowners, STAR has induced voters to spend more on education. This increased spending, which is financed through higher property taxes, has the unintended effect of offsetting part of the original property tax relief provided by STAR. The offset is nearly 80 percent in Albany, Buffalo, and Syracuse, and over 40 percent in many of New York's upstate small cities and rural communities. (Eom, Duncombe, Nguyen-Hoang, and Yinger)
- Passed by voters in 1980, Massachusetts' Proposition 2½ limits each local government's annual increase in property taxes to 2.5 percent. These property tax limits can be increased if local voters approve an override referendum. An unintended consequence of the referendum process has been to increase racial segregation across school districts in Massachusetts. Communities that pass overrides have higher incomes and lower minority enrollments than communities that don't, and successful overrides appear to reduce minority enrollment. (Zabel)
- Tax increment financing (TIF) is used by municipal governments in most states as a tool to reduce blight or promote economic development. During the life of a TIF district, no tax revenues generated by increases in the assessed value of the district flow to overlying governments, such as school districts. In Iowa, the establishment of TIF districts has resulted in modest decreases in public school spending, with the largest impacts of TIFs occurring in low-income or low-wealth districts. Once TIFs expire, they do not, however, lead to increased spending. (Nguyen-Hoang)
- Between 1995 and 2010 the revenues of school-supporting nonprofits, such as parent-teacher associations and charitable school foundations, grew by nearly 350 percent. Despite this growth, on a per pupil basis these organizations provide a very small share of the total revenue of public schools. Furthermore, these non-profit organizations tend to provide assistance to more well-off districts. The evidence shows that contributions from nonprofits do not generally substitute for property tax revenue. Instead, school districts with higher revenues from federal sources and from property taxes also have higher contributions from school supporting charities. (Nelson and Gazley)
- Though school districts might be expected to increase reliance on fees and other sources of local nontax revenue, revenues from these sources actually grew at a slower pace. By 2011, they remained under $400 per pupil. The slow growth of school district revenue from fees may be due to the limited opportunities available to most school districts for fee-based financing. (Downes and Killeen)
Of housing and big plans
Housing and Global Urbanization: Learning from Le Corbusier was the topic of the final presentation in the Fall 2014 lecture series. Born Charles-Edouard Jeanneret-Gris, Le Corbusier rebranded himself and established his architectural practice in Paris in the roaring twenties, revolutionizing the design of homes and apartments, government buildings, and churches. The United Nations compound in New York City is essentially his design; his vision of urban planning was realized in the city of Chandigarh, India, which he built from scratch on the Himalayan plain. Within walking distance of the Lincoln Institute, the Carpenter Center at Harvard University is his only building in North America. But although he has been revered in architecture schools, over the years the condemnation has grown, as blame is traced to him for inspiring the towers in the park, freeways and concrete complexes of urban renewal.
The lecture was based on the recently published book Modern Man: The Life of Le Corbusier, Architect of Tomorrow, by Anthony Flint, fellow and director of public affairs at the Lincoln Institute. The proposition was that there are valuable lessons that may yet be teased from the father of modern architecture, beginning with his innovative and efficient housing ideas - seen in today's trend of micro-apartments - and his appreciation of the grand scale needed to plan the developing world's burgeoning cities in the 21st century. The ensuing conversation explored the role of the architect today in urban planning and urban design, and the place of big plans versus more organic and self-organizing iterations promoted by Jane Jacobs, in the context of global urbanization.
Odds & Ends
The impact of historic districts on local housing markets is examined in this paper by authors including Vicki Been and Ed Glaeser ... At MoMA, exploring tactical urbanism … Manufactured housing – under-utilized and misunderstood? ... China opened 32 high-speed rail routes this week, including Shanghai-Guangzhou, the equivalent of LA to Seattle ... Facing gentrification, Oakland wants to stop being known as the next Brooklyn ... This month's highlighted working paper: An Open Field: Emerging Opportunities for a Global Private Land Conservation Movement, by Laura A. Johnson, now a visiting fellow at the Lincoln Institute. Happy Holidays from all of us at the Lincoln Institute of Land Policy!
— ANTHONY FLINT, Lincoln Institute of Land Policy